Commentary on current housing and planning issues

AirBnb and housing supply

‘Disruption’ is a favoured buzzword for some folk in housing. They laud companies like Amazon and Uber and yearn for the emergence of a new player to disrupt the housing industry. Of course, disruption can be bad or good, or both. Amazon provides a cheap and efficient service but it has put many small bookshops and other retailers out of business and has been accused of providing poor working conditions for staff.

Airbnb is the latest company to disrupt the world of property. So far, it has mostly impacted upon the hotel and holiday-let sectors, but it is starting to have an effect upon the wider letting market.

Founded in 2008 in San Francisco, Airbnb has more than 2.3 million worldwide listings and 500,000 nightly stays. This is small beer in terms of the world’s stock of property of around 1.5 billion homes, but it is growing exponentially and now operates in 35,000 cities across 191 countries.

On New Year’s Eve more than 2 million people stayed at an Airbnb, according to the company – double the 2015 figure. It is having a significant impact in cities like London and Paris. San Francisco, Chicago and New York have already taken steps to curb its business model because of its negative effect upon local property markets.

Airbnb is now worth $30bn and yet owns few assets. Like Uber, it is merely a platform that hooks up providers with purchasers.

In 2015 the UK Government changed planning regulations to allow Londoners to let out their properties for up to 90 days a year without the need for planning permission, to bring the capital in line with the rest of the country. It has been estimated that there are around 50,000 Airbnb listings in London.

The company recently responded to political pressure and banned London hosts from letting their homes for more than 90 days in any year.

Prior to this, around two thirds of listings were available for more than 90 days. But planning enforcement officers are already stretched to the limit and dealing with short-term lets will be low on their list of priorities.

Short of recruiting an army of nosy neighbours to gather evidence of comings and goings, I don’t see how it will be possible to monitor the use of a specific property.

And how is anyone supposed to check if a landlord is using more than one home-sharing site to let their properties in breach of the 90-day rule?

It’s important to distinguish between private room and entire property Airbnb listings. The former mostly make use of spare bed spaces in occupied homes, whereas entire home lettings are short-term lets that could be used as a permanent home.

“As Airbnb grows it could change the character of some neighbourhoods and apartment blocks.”

The split between private rooms and entire homes in London is roughly 50/50, but as Airbnb grows it could take more and more properties out of the Private Rented Sector (PRS), for the simple reason that the returns from short-term lets are potentially more lucrative.

A recent report by the IPPR said that home sharing sites like Airbnb have the potential to impact upon London’s housing supply in the future.

I recently stayed in a four-bed, eight-person house in Folkestone, at a nightly cost of £120 – much cheaper than a hotel. Ninety days would give the owner an income of £10,800 – about £1,000 more than the potential annual rental in the PRS locally.

Of course, there are differences in fees, administration and wear and tear between the two uses, but Airbnb gives owners much greater flexibility to use properties as they choose and to block out whole months of the year, allowing them to use the property for other purposes or to go on extended holidays.

As Airbnb grows it could change the character of some neighbourhoods and apartment blocks, with guests constantly coming and going, and destroying any sense of community stability.

Hotels and conventional B&Bs cannot compete because they face stricter regulatory standards covering fire and health and safety, and they also pay higher taxes – up to 20% of the cost of a hotel room is down to Value Addex Tax and property taxes.

We could see some hotels becoming unviable and being converted into blocks of flats.

On top of planning regulations, many mortgages or local covenants also prevent sub-letting, but Airbnb cops out of this by putting the onus on hosts to confirm that their letting complies with any mortgage or other conditions and is in “compliance with all applicable laws”.

Some owners are exploiting this lack of regulation in a big way, with reports of some hosts having hundreds of homes on the books.

On the up side, Airbnb can bring tourists into less salubrious parts of town. I recently stayed with three others in an apartment in the Fives district of Lille; it’s on the wrong side of the tracks and is predominantly working class and north African, but we spent money in local bars and shops, so areas like these could see some benefits.

You can argue that the letting of private rooms is making better use of housing assets, albeit to the detriment of the hotel industry, but the use of entire homes as short-term lets is a different story altogether.

If more and more landlords remove their properties from the PRS then it will start to have a significant impact upon the number of properties that are available as permanent homes.

Like student housing, Airbnb lets are effectively second homes – the people who use them generally have a home elsewhere, so they do not make any net addition to the housing stock and can reduce the numbers available for use as permanent homes.

There might come a point when local authorities and legislators will need to take a firmer stance on the activities of this disruptor.

(This blog first appeared on the Inside Housing website on 9th January 2017)